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Spinning the pay TV pirating issue

It is interesting to follow announcements from former leaders. I recently compared Malcolm Turnbull’s suggestion for government intervention in the telecoms manufacturing market with his stand as a liberal politician who frowns upon government intervention.

This time- but on a different topic –  I am looking at an assessment Kim Williams, a former CEO of Foxtel, made on the issue of online piracy. He indicated that thanks to government and industry diligence online piracy has been significantly reduced over the last few years.

Just going back to 5 -10 years ago, the height of online piracy in the pay TV industry. At that stage Foxtel was the dominant player in this market. For customers, in order to get access to the service they needed to buy a complex package of entertainment services of which often 90% was not what customers were interested in but in order to get the interesting part such as sport and movies one had to buy packages of $100 or more a month.

Since the arrival of pay TV in the mid-1990s I have argued against the business model of Foxtel. I mentioned at that time that based on that model they would not be able to get much more than 25% market penetration. The company itself indicated that by the year 2000 it would achieve a 75% penetration.

The sad thing was that they had also based their purchase arrangements with the Hollywood studios on these unachievable targets. They had committed $25 billion over 10 years for such content. In consequent years they had to go cap in hand to the content owners and negotiate lower prices for their movies.

At the time I mentioned that in Europe and  North America basic pay TV packages started at around US$15 a month. In a heated telephone call Kim Williams argued with me that this was not a true comparison as the Foxtel package included far more and better content than those basic US and European packages. That might have well been the case, but I argued that not much more than 25% of Australians would be prepared to pay the prices that Foxtel was charging.

Now some 20 years later Foxtel’s penetration level is still around 25%, it might perhaps have peaked around 30%.

While I certainly never condoned piracy, I argued over the last two decades that by charging such high amounts the company stimulated, of course unwillingly,  some people to move into piracy.

All of this changed with the arrival of Netflix. With their charge of around $10 per month and, surprise, surprise customers flocked to the service. They now have over 13 million subscribers!

So the reason that piracy has gone down is mainly because of Netflix’ arrival in the market. Australians are no criminals, but they do want to have a fair go. When Netflix offered a fair go package people didn’t need to revert to piracy anymore.

Foxtel remained a reluctant follower of this trend and have ever since seen their subscriber numbers going down. They remain the dominant player in the sport market and that is where most of its users are. With Games of Thrones they also get a short-lived booze of customers during the duration of the broadcasting of the series, but with the last series now being screened it will be interesting to see how they will fare after this. The general trend for subscriptions to the service remains downwards.

So I would like to refute Kim’s claim that it has been the government and industry fight against piracy that has seen piracy going down instead it was mainly competition and the market forces that provided the right environment for such services and as a consequence people started to pay what they saw as a reasonable and affordable price for these services.

Paul Budde

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